TRANSFORMATION OF PAYMENTS SYSTEM
IN NIGERIA
BY
J. OMEBERE IYARI
BRANCH CONTROLLER, LAGOS BRANCH
CENTRAL BANK OF NIGERIA
ON 17TH APRIL, 2015
AT
THE COVENANT UNIVERSITY, OTA
OGUN STATE
CENTRAL BANK OF NIGERIA
Outline
2
 Introduction
 Evolution of the Nigerian payments system
 Components of the Payments System.
 Transformation of Payments System
 Payments System Initiatives
 Most Recent Initiatives
 Issues and Challenges
 Way forward
 Conclusion.
CENTRAL BANK OF NIGERIA
Payments System defined
3
 The Bank for International Settlement
defined payment system as ‘ a specific
set of instruments, banking procedures
and inter-bank funds transfer ( e.g.
clearing and settlement) systems that
ensures the circulation of money”.
CENTRAL BANK OF NIGERIA
Payments System defined
4
 Payments
system
is
the
entire
arrangement of instruments, procedures,
regulation
and
laws
governing
institutions, interconnected networks of
hardware and software, institutions and
communications technology facilitating
transfer of monetary value between
transacting parties.
CENTRAL BANK OF NIGERIA
Definition (Cont’d)
5
 Simply put, the payments system is any
arrangement that facilitates the
transfer of monetary value among
transacting parties.
 Payments
System is the major
foundation of modern market economy.
CENTRAL BANK OF NIGERIA
Definition (Cont’d)
6
 The payments system plays three key
roles, namely:
 Monetary policy role
 Financial stability role
 Overall economic role
CENTRAL BANK OF NIGERIA
OBJECTIVES OF PAYMENTS SYSTEM
7
 The primary objective of the payments system is to
facilitate transfer of monetary value amongst
parties. However, achieving this objective requires
an efficient , safe and reliable payments system.
 To facilitate timely exchange of value with least
cost to users, system providers and the economy.
 To contain the inherent risks such as liquidity,
credit, operational, legal and systemic risks.
CENTRAL BANK OF NIGERIA
KEY BENEFITS OF PAYMENTS SYSTEM
8
 High inflow of liquidity into the banking
system.
 Effective liquidity management
 Efficient
and
safe
execution
and
management of monetary policy operations.
 Less-cash payment environment.
 A safe and effective payments infrastructure
is core to the financial stability of any
country.
CENTRAL BANK OF NIGERIA
IMPORTANCE OF PAYMENTS SYSTEM
9
 As a mechanism for the transfer of
monetary claims in commercial and
financial transactions.
 It allows for optimisation of scarce
financial resources.
CENTRAL BANK OF NIGERIA
IMPORTANCE OF PAYMENTS SYSTEM
10
 Payments system performs pivotal roles
in the economy, including fostering
stability in the financial system,
providing a channel for effective
monetary policy, and promoting
economic efficiency in general. Indeed,
there is a strong relationship between
an efficient
payments system and
effective monetary policy.
CENTRAL BANK OF NIGERIA
Evolution of the Payments System
11
 The Nigerian payments system has evolved from the
rudimentary traditional exchange systems which
existed prior to the establishment of formal banking
system in the then British colonies and during the
period immediately following the establishment of
the CBN.
CENTRAL BANK OF NIGERIA
Development of Payment System
12
Over time and with increased banking services,
more sophisticated instruments of exchange
have developed such as the use of banknotes,
coins, cheques and electronic transfers.
 These developments were traceable to the
collaborative efforts between the CBN, the
deposit money banks and other key
stakeholders in the banking system in
particular and within the financial system in
general.

CENTRAL BANK OF NIGERIA
Development of the Payments System
13
 In pursuance of its mandate of ensuring the
emergence of an efficient and safe payments
system, the CBN in her role as the regulator of
the banking industry, has embarked on a
number of initiatives aimed at providing needed
infrastructure, and the development of
institutional
and
regulatory
frameworks,
following a series of amendments to the original
CBN Act, which have strengthened the Bank’s
legal basis for developing the payments system.

CENTRAL BANK OF NIGERIA
Roles of CBN inPayments System
14
 Service Provision : CIFTS ( The CBN RTGS), Clearing and
Settlement Service.
 Oversight Responsibility: provision of direct oversight
activities, establishment of Payments System and Policy
Oversight Office;
data gathering and Processing of
complaints ; Rules and Regulations, Guidelines, Circulars
issued to guide activities of financial institutions.
 Payments facilitation: Adoption of MICR, NACS, Central
Switch, Cheque Standard Administration Unit, Cheque
Printers Accreditation, RTGS and S4.(Scriples Securities
Settlement System).
CENTRAL BANK OF NIGERIA
COMPONENTS OF Payments
15
 The components of the payments system can be
categorised as follows:
 Payment Instruments
 Participating Institutions (e.g banks, discount
houses, clearing agent/NIBSS, etc)
 Payment Infrastructure (e.g NACS, RTGS, T24)
 Laws, rules, standards and guidelines which
govern the conduct of payment services .
 Market arrangements and procedures for
rendering payment services.
CENTRAL BANK OF NIGERIA
TYPES OF PAYMENTS INSTRUMENT
16
 Cash (Note and Coins). These constitute the legal
tender currency issued by the CBN.
Cash remains the dominant payments
instrument in Nigeria from 1959 to date due to its
immediate settlement finality and the low banking
habit in the country. However, the dominance of
cash as a preferred mode of payment has had
negative implications for monetary management,
thus necessitating the development of alternative
modes of payment.
CENTRAL BANK OF NIGERIA
TYPES OF PAYMENTS INSTRUMENT
17
 2.
Cheque:
 This is a written order from one
party ( a drawer ) to another (the
drawee) requiring the drawee to
pay a specified sum on demand to
the drawer or to a 3rd party
specified by the drawer.
CENTRAL BANK OF NIGERIA
TYPES OF PAYMENTS INSTRUMENT
18
 3. Electonic Card (e-card)
 This is a physical plastic ‘Card’ that uniquely
identifies the holder, and can be used for financial
transactions on the internet, ATM, PoS, etc. The
cards are categorised as :
 Debit
card,
credit
card
and
stored
value/Reloadable card.
 Electronic Money (e-money): Monetary value
stored on an electronic device such as mobile
phone, prepaid card, etc.
CENTRAL BANK OF NIGERIA
PAYMENTS CHANNELS
19
 Payment channels in Nigeria exist in
various forms. The popular channels
include the followings:
 Over the counter cash payment at the
DMB’s banking hall.
 Automated Teller Machines;(ATM)
 Point of Sale (PoS) Terminal
CENTRAL BANK OF NIGERIA
PAYMENTS CHANNELS
20
 Online web portals.
 Mobile phones.
 Automated Clearing House (ACH) or e-
payment platforms.
 Electronic Funds Transfers using
payment infrastructure such as the Real
Time Gross Settlement (RTGS) system
for Interbank Funds Transfer, ThirdParty Funds Transfer, etc.
CENTRAL BANK OF NIGERIA
PAYMENTS SYSTEM PARTICIPANTS
21
 The participants of the payments system are:
 Deposit money banks.
 Discount houses
 Payment
service providers ( e-payment Scheme
Operators, ISP, ATMCs, etc.
 EFT switches (Interswitch, e-transact, ValuCard, Card
Technology, 3-Line, Chams etc)
 Nigeria Interbank Settlement System(NIBSS PLC).
 National Central Switch (Managed by NIBSS)
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
22
 According to Cambridge Dictionary, Transformation
is a complete change in the appearance or character
of something or someone, especially so that the thing
or person is improved.
 In an organisational context, it is a process of
profound and radical change that orients an
organisation in a new direction, and takes it to an
entirely different level of effectiveness. It implies a
radical change of character with little or no
resemblance with the past configuration or structure.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
23
 Steps taken to modernise the Payments System :
 MAGNETIC INK CHARACTER RECOGNITION (MICR)
 The CBN adopted the Magnetic Ink Character Recognition
(MICR) technology in 1988 . Following the myriad of
problems associated with the MICR implementation process,
the Bank in consultation with the Bankers’ Committee,
decided to fully automate the clearing process by introducing
the latest clearing technology, then the National Automated
Clearing System (NACS). The adoption of MICR gave rise to
the automation of the clearing system to make it a veritable
platform for development of electronic payment channels.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
24
 NIBSS :The Nigeria Inter-bank Settlement
System Plc was established in 1993, and
mandated to manage the NACS system. As
a veritable platform for supporting the
electronic payments system, the NACS has
facilitated the efficient and cost-effective
process of clearing items based on
electronic data presentation.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
CONTD’
25
 It has also facilitated the development of other
financial products, such as electronic cards
the NIBSS Fast Funds, and the NIBSS
Electronic Funds Transfer (NEFT), in addition
to the traditional, paper-based instruments.
Furthermore, the NACS has made it possible
for the clearing cycles of local and upcountry
instruments to be reduced drastically.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
CONTD’
26
 NIGERIA AUTOMATED CLEARING SYSTEM (NACS) :
The NACS became operational in October 2002 in the Lagos
Clearing Zone before it was extended to Abuja in March 2005 and
later to Port Harcourt in 2008. It reduced the clearing cycle from 5
days to 3 days for Local instruments and from 9 days to 6 days for UpCountry chegues.
Local and Up-Country clearing cycle was
harmonised to T+2 in 2008. Presently, clearing cycle of
financial instruments(including cheques) had been harmonised
to T+1.(T=Transaction date/day + one day to receive value). This is
one of the fastest clearing cycle in the world and virtually eliminates
float and facilitates transmission of monetary policy decisions or
measures.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
CONTD’
27
 The
New Settlement System: Settlement
/Non-Settlement banks:
 The CBN had introduced and implemented a
new clearing and settlement framework in
April 2004.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
(CONTD)
28
 The new system categorised banks into Settlement and
Non-Settlement banks. It also involved an upward
review of the required clearing collateral to N15 billion
for each of the banks to be a settlement bank.
 Following this development, seven clearing banks,
which had met the requirement for maintaining a
clearing account, were appointed and designated
“Settlement Banks” in April 2004, and given the task of
performing the clearing functions for other banks.
 The number of settlement banks was further increased
to 12 in 2006 as more banks met the requirements.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
(CONTD)
29
 The settlement arrangement under the
new system has enabled non-settlement
banks to maintain agency arrangements
with the settlement banks. The new
clearing and settlement arrangement has
reduced the various risk elements that
were associated with the earlier settlement
processes. There are presently eleven
settlement banks in Nigeria.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
(CONTD)
30
 The REAL TIME GROSS SETTLEMENT SYSTEM
(RTGS)
 Prior to 2006, large-value payments were settled
through a deferred net settlement system before
the introduction of the Real-Time Gross Settlement
(RTGS) System in Nigeria. The net settlement
system was prone to settlement and systemic risks.
Given the defects of the net settlement system and
in view of the sensitive nature of wholesale
payments, the CBN commenced the operation of
the RTGS system.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
31
 RTGS: The CBN had commenced the operation
of the RTGS System on December 18, 2006 with
a view to increasing the efficiency of time
critical payments. The CBN named its RTGS as
the CBN Inter-bank Funds Transfer System
(CIFTS). The system interfaces with the Bank’s
core banking application (the T24 system) and
has all the 24 Nigerian deposit money banks
and five (5) discount houses as direct
participants from inception.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
32
 The System allows participants to perform
‘electronically,’ a number of transactions from
their offices, using the Terminal Access Device.
Notable among the transactions that can be
effected are inter-bank transfers, third party
fund transfers (transfer on behalf of bank A’s
customer to the account of bank B’s customer),
account balance enquiries, queue management,
reports generation and reconciliation.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
33
 The RTGS also offers a number of other benefits
which include a reduction of systemic risk, the
elimination of settlement risks due to the
irrevocability of payments messages, and
enhanced efficiency of the monetary policy
implementation process. The system is also
capable of providing Delivery Versus Payment
(DVP) for securities settlement and Payment
Versus Payment (PVP) for foreign exchange
settlement to reduce risks.
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
(CONT’D)
34
 MICR
Technical
Implementation
Committee
(MTIC):
 The MTIC was set up to provide strategic direction in
the Management of MICR , Cheque truncation
system and processes in the improvement of clearing
process and security of documents used in the
Nigerian banking industry.
 The Committee members were drawn from two
departments of the CBN, DMBs and NIBSS
CENTRAL BANK OF NIGERIA
TRANSFORMATION OF PAYMENTS SYSTEM
(CONT’D)
35
 The Committee monitors compliance with the Nigeria
Cheque Standard by the banks and local cheque printers. It
carries out yearly inspection of cheque printers for
evaluation and assessment of the quality of cheques. It
monitors quality for their MICR print system and chequeimage design , in order to ascertain their continued
conformity with the specifications of the Nigeria Cheque
Standard(NCS) and the standard as contained in the
Nigeria Cheque Printers Accreditation Scheme(NICPAS)
documents, and consequent reduction in MICR reject.
 The Committee recently completed the accreditation
exercise of cheque printers for year, 2014.
CENTRAL BANK OF NIGERIA
Payments System Initiatives
36
 Cheque Standards:
 Nigeria Cheque Standards and Nigeria Cheque
Printers Accreditation Scheme (NICPAS) were
issued in 2006 and commenced operations fully in
2007. The aims are to ensure strict compliance with
minimum technical requirements for the effective
implementation of the required standards.
CENTRAL BANK OF NIGERIA
Payments System Initiatives
37
 The Cheque Standard and the NICPAS are to address the
fundamental problem confronting cheque transactions in
Nigeria, such as poor quality of cheque paper, inadequate
security on paper, non usage of security inks; cheque design
format not consistent with recommendations, absence of
post-encoded cheques, wrong sort code, and above all,
proliferation of cheque printers in Nigeria. Before now we had
twelve accredited cheque printers both Local and foreign. The
CBN adopted the use of only local printers in 2011, to
domesticate cheque printing.The Scheme was intended to
regulate cheque printing to stem the rising trend in the
cheque reject rate. Presently, there are two accredited cheque
printers in Nigeria. The accreditation exercise is done once
every
year.
CENTRAL BANK OF NIGERIA
Payments System Initiatives
38
 The uniform standard has facilitated a significant improvement
in the clearing process and in the management of payment
risks and thereby further, increasing public confidence in the
Nigerian banking system.
 Cheque Standard Administration Unit: (CSAU) : The Cheque
Standard Administration Unit is domiciled in CBN –Banking
and Payments System Department(BPSD) established to
provide blue print for quality control of cheques production job
order between the banks and the cheque printers; monitor the
quality for their MICR print system-image design, in order to
ascertain their continuous conformity with the specification of
the Nigerian Cheque Standards (NCS) and the standard as
contained in the NICPAS documents , consequently resulting in
a reduction
in MICR
reject rates.
CENTRAL BANK
OF NIGERIA
Payments System Initiatives
39
 Electronic Payments: The use of payment cards was
introduced in Nigeria in the early 1990s, but there was a
low level of acceptance at the initial stage, due to a number
of factors including the following:
 lack of a shared network, poor services, a limited number of
Automated Teller Machines (ATM) and Point of Sale (PoS)
Terminals, and the high cost of operations. However, the
collaborative efforts the CBN, the commercial banks and
other stakeholders have significantly facilitated the
adoption of electronic payments in Nigeria.
CENTRAL BANK OF NIGERIA
The Automated Teller Machine (ATM) and the
Point of Sale (PoS) Terminal
40
 Automated Teller Machine (ATM): There were various
attempts by Nigerian banks to operate Automated
Teller Machines in the early 1990s. Such ATMs were
stand-alone equipment and not interoperable. In view
of the problems of interoperability, a consortium of
banks soon introduced common platforms for shared
ATMs and floated switching companies to manage
them. The CBN licensed the first Electronic Funds
Transfer (EFT) switch in 2004 and by 2008, the
number of switches had increased to five. This
initiative, together with other significant developments
in infrastructure and the regulatory framework,
brought about an upsurge in the use of ATMs and debit
cards in Nigeria.
CENTRAL BANK OF NIGERIA
The Automated Teller Machine (ATM) and the
Point of Sale (PoS) Terminal
41
 Point of Sale (PoS) : The PoS terminal that
had started as an off-line device recorded
some improvement in its service delivery.
The growing connectivity of PoS terminals
via General Packet Radio Services (GPRS)
has facilitated their spread across the
country. The non-availability of wired line
connectivity has not constrained the process.
CENTRAL BANK OF NIGERIA
Mobile and Web Payments
42
 Mobile Payments: The preponderance of GSM
services in Nigeria since 2002 has paved way for
the introduction of electronic payments, popularly
known as ‘mobile payment’ in Nigeria. In order to
guide the conduct of its operations, the CBN
provided a Regulatory Framework for Mobile
Payments Services in 2008. This was aimed at
providing much needed guidance on the use of the
mobile phone for the provision of payments
services in the country.
CENTRAL BANK OF NIGERIA
Mobile and Web Payments
43
 The
mobile payments regulatory framework
provides minimum standards on technology,
security, operations and dispute resolutions. The
internet is increasingly being used for financial
services in Nigeria. Deposit money banks and
merchants are enabling their customers to conduct
an increasing number of financial services, such as
the purchase of air tickets and other products,
conduct account inquiries, and complete fund
transfers using this media.
CENTRAL BANK OF NIGERIA
Payments System Initiatives Cont’d
44
 Guidelines on Electronic Payments: The Central Bank of
Nigeria, in an attempt to promote electronic banking in
Nigeria had issued guidelines on e-banking in 2003. The
guidelines encourage the development of e-payment
initiatives, such as the establishment of the switching
companies that have facilitated interconnectivity, the
introduction of shared ATMs, and the establishment of
Independent Service Operators (ISO) for the massive
deployment of ATMs and PoS—all of which have
significantly boosted the growth in the use of payment
cards in Nigeria.
CENTRAL BANK OF NIGERIA
PAYMENTS SYSTEM INITIATIVES( Cont’d)
45
 E-payment,
liquidity management and monetary
stability
 As electronic payment becomes more efficient and more
widely used, the liquidity management functions of
monetary authorities have become more efficient, and also
positively impact on achievement of the price and
monetary stability mandate of the Central Bank of Nigeria.
 The increased use of electronic payments by hitherto
financially excluded individuals captures more transactions in
the informal sector, liquidity managers thus have a holistic
and up to date position of the economy which ultimately
engenders effective macroeconomic management.
CENTRAL BANK OF NIGERIA
PAYMENTS SYSTEM INITIATIVES( Cont’d)
46
 The enhanced acceptance of electronic payment not
only improves the economic efficiency of a country, but
also allows substantial cost savings. Studies have
shown that widespread utilisation of electronic
payment systems has the potential of contributing to at
least 1% of a country's GDP annually. Indeed, there are
important potential benefits and scale effects that can
be reaped from the realisation of the electronic
payment agenda for individuals and businesses, as well
as for the economy as a whole.
CENTRAL BANK OF NIGERIA
The National Central Switch
47
 The
National Central Switch: The Bankers’
Committee in 2006, approved the establishment of a
National Central Switch to facilitate interoperability
and interconnectivity between Electronic Funds
Transfer (EFT) switches. The technical requirements
and operational guidelines were concluded and all
the existing switches were expected to connect to the
National Central Switch. The platform is expected to
support the integration of the Nigerian retail
payments system with the West African Monetary
Zone’s retail payments system as the backbone.
CENTRAL BANK OF NIGERIA
Payments System Institutional Framework
48
 Over the years, the CBN has put in place a
number of measures to strengthen its internal
capacity to cope with the rapid developments in
the payments system. The internal structures
have also been able to exercise greater, more
effective surveillance over the system through the
regular issuance of relevant rules, regulations
and guidelines. We will now discuss the four
associated national institutional frameworks
briefly.
CENTRAL BANK OF NIGERIA
National Payments System Committee
49
 The reconstituted National Payments System
Committee was inaugurated on May 31, 2005
by the CBN to provide strategic direction for
the development of the payments system.
Membership of the Committee was drawn
from deposit money banks, relevant
government agencies, regulators, and other
stakeholders in the financial services industry,
with the Governor of the CBN as Chairman.
CENTRAL BANK OF NIGERIA
PAYMENTS SYSTEM VISION 2020
50
 The
development of country-specific payments
systems is a recent global trend. In line with this
initiative, the CBN has developed the “Vision 2020”
payments system, and named it “Vision2020” which
embodies the vision and strategy for the country’s
payments system.
 The document was prepared in 2006 and 2007, and
describes the CBN’s comprehensive response to
global developments, as well as the need for a
holistic approach to payments system development
in Nigeria.
CENTRAL BANK OF NIGERIA
PSV 2020 (Cont’d)
51
 The document provides a road map for infrastructure
in the context of end-users, service providers, the
CBN, the regulators of financial institutions, and the
international community. The Payments System
“Vision 2020” aims at creating an electronic
payments infrastructure that would be used
nationally, and received internationally.
Towards realising the vision described above, the
following seven key initiatives have been identified as
the drivers of developing the envisaged electronic
payments system:
CENTRAL BANK OF NIGERIA
PSV 2020 (Cont’d)
52
(1) Government Supplier Payments would be made
electronically and directly into the bank accounts of
the beneficiaries.
(2) Person-to-Person Trade would be settled
electronically; Mobile phones would be the primary
channel of settlement;
(3) Salary Payments would be made via direct
deposits into bank account;
(4) Consumer Bills Payments would be made
through ACH debits;
CENTRAL BANK OF NIGERIA
PSV 2020 (Cont’d)
53
(5) Business Taxes would be paid electronically;
(6) Personal Taxes would be paid directly into
the accounts of relevant tax authorities; and
(7) Securities Settlements such as dividends and
the proceeds from the sale of securities would
be paid electronically (via ACH credit or RTGS)
into beneficiaries’ accounts.
CENTRAL BANK OF NIGERIA
The National Payments System Working Groups
54
 The CBN constituted eleven working groups on August 30,
2007 to facilitate the implementation of the National
Payments Strategy by providing the needed guidelines,
procedures, rules and regulations for the effective
implementation of the initiatives and recommendations
outlined in the Payments System “Vision 2020”.
Membership of the Working Groups was drawn from the
institutions and stakeholders involved in the payments
system. The working groups include the following:
 Person-to-person Working Group;
 Government Supplier Working Group;
CENTRAL BANK OF NIGERIA
The National Payments System Working Groups
55
 Consumer Bills Payments Working Group;
 Taxes Working Group;
 Salary Payments Working Group;
 Securities and Settlement Working Group;
 Electronic Cards Working Group;
 The RTGS Working Group;
 Cheques and ACH Working Group;
 Legal/Special Interest Working Group; and
 The West African Monetary Zone (WAMZ) Special
Interest Working Group.
CENTRAL BANK OF NIGERIA
Payments System working Groups Cont’d
56
 It is pertinent to note that some of the recommendations
of the National Payments Working Groups are already
being implemented.
 Significant progress made are as listed below:
 Guidelines on direct debit
 Issuance of Mobile Payments Regulatory Framework.
 Establishment of Payments System Policy and
Oversight Office in 2009.

Guidelines on Stored value and Prepaid Card Issuance
and Operations.
CENTRAL BANK OF NIGERIA
Payments System working Groups Cont’d
57
 Standards on Transaction Switching Services.
 Standards and Guidelines on ATM Operations
Guidelines.
 Guidelines on E-payments of Government Suppliers,
Taxes, Salaries and pensions.
 Circular on Maximum Cheque Cap (N10 million).
 Payments System Management Bill (yet to be finalised)
 Format of evidence for Electronic Transactions to be
admissible in court was also developed and gazetted as a
subsidiary legislation.
CENTRAL BANK OF NIGERIA
PSV 2020 (summary)
58
 The Nigerian Payment Systems “Vision 2020”, when
fully implemented,
 would facilitate growth in Nigeria’s economic
activities by providing a safe and efficient
mechanism for making and receiving payments, with
minimal risk to the Central Bank, the payment
service providers, and the end-users.
 It would extend access to a sophisticated payments
infrastructure to all sectors and locations of the
country.
 It would also provide a payments system that is in
conformity with international acceptable regulatory,
CENTRAL BANK
NIGERIA
technical
andOFoperational
standards.
Recent Payments System Initiatives
59
 Bank Verification Number
 NEFF
 Cheque Truncation System
 Mobile payments
 Agent Banking
 International Money Transfer Services
 ATM (Remote-on-us- withdrawal)
 E-Payments
 Scriptless Securities Settlement System
 E-Reference Portal
 Authorised Signature Verification Portal
CENTRAL BANK OF NIGERIA
Bank Verification
Number
(BVN)
60
 CBN in collaboration with the Bankers’ Committee
has introduced the Bank Verification Number (BVN)
with biometric solution, as a unique identifier for all
bank customers
 The key objective of BVN is to authenticate a
customer of financial institutions using a unique
identifier across the industry.
 The BVN enables one person to have a single identity
within the financial system irrespective of the
number of accounts within multiple banks.
CENTRAL BANK OF NIGERIA
Benefits of BVN
61
 Enhances the effectiveness of Know Your
Customer (KYC)
 Reduces exposure to fraud
 enhances credit advancement to bank
customers,
 check identity theft,
 promotes a safe and sound financial system
in Nigeria
CENTRAL BANK OF NIGERIA
BVN Timelines
62
The Bank communicated the following in a recent a
circular to DMBs:
• that by March 2015, transactions valued at
N100,000,000.00 (One hundred million Naira)
and above, should only be allowed for customers
with the BVN;
• That by June 2015, all banks’ customers should
have the BVN. Any bank customer without the
BVN would be deemed to have inadequate KYC;
CENTRAL BANK OF NIGERIA
BVN Timelines
63
• DMBs should sensitize its customers on
the aforementioned development and
enrol them for the BVN accordingly.
• DMBS are required to submit to NIBSS,
as part of their weekly returns on
Customers Account Details, the account
status of customers that have submitted
their BVN and those that have not.
CENTRAL BANK OF NIGERIA
Nigeria electronic Fraud Forum
(NeFF)
• NeFF was inaugurated in December,
64
2011 as part of CBN’s effort at increasing
the safety of transactions in the financial
sector through proactively managing efraud issues.
• Membership include DMBs, Payment
Service Providers, & Law Enforcement
Agencies
CENTRAL BANK OF NIGERIA
Nigeria electronic Fraud Forum
(NeFF)
• The key objective of the Forum is to
65
share information on e-fraud and provide
various measures for combating fraud
and dealing with fraudsters.
• One of the achievements is the
implementation of Industry wide Antifraud solution to monitor and minimise
fraud incidence.
CENTRAL BANK OF NIGERIA
Cheque Truncation System
 Cheque
66
Truncation System (CTS) is the
process by which the physical movement of
cheque is eliminated and replaced with the
electronic image and the corresponding data
contained in the MICR code line.
 It is simply a dematerialization of the physical
cheque. It is the conversion of physical cheque
into electronic form for transmission to the
paying bank.
CENTRAL BANK OF NIGERIA
Cheque Truncation System
67
 The key objective of CTS is to increase
the efficiency of cheque clearing
 CBN
approved and released the
guidelines on Cheque Truncation in
Nigeria on March 14, 2012.
CENTRAL BANK OF NIGERIA
Cheque Truncation Model
68
 Image and Data model – Cheque images and
MICR data flow from Presenting Bank through to
the Paying Bank.
 Data Capture – Presenting Bank’s model.Cheques are truncated by the presenting bank and
within prescribed times defined by the guidelines.
 Data and Image Exchange- Clearing House ModelThe clearing house acts as an intermediary for data
and image flow between the presenting bank and
the paying bank.
CENTRAL BANK OF NIGERIA
Cheque Truncation System
69





NIBSS is the Central Image Warehousing Agency (CIWA) ,
charged with the responsibility of storage and certification
of Cheque images.
The electronic images shall be retained by CIWA for a
minimum period of 10years in line with financial record.
Original instrument or cheque to be retained by the
Presenting Banks for a minimum period of 5years.
Banks ( presenting and paying) are encouraged to also
warehouse electronic images for control purposes.
CBN Branches use i-teller scanner for its cheque
truncation
CENTRAL BANK OF NIGERIA
Mobile Payments
70
 Mobile payment is a system through which
banking services are rendered to customers
using the mobile phone as delivery channel.
 The Bank adopted mobile money as a major
strategy for the delivery of financial inclusion.
 As the most universal and cheapest electronic
channel today, the mobile phone is therefore,
the easiest route to the financial inclusion of
the unbanked segment of the economy.
CENTRAL BANK OF NIGERIA
Mobile Payment Models
 Bank
71
–Focused: Licensed Deposit Taking
Financial Institutions as Lead Initiator
 Bank-Led : Licensed Deposit Taking Financial
Institutions and/or its Consortium as Lead
Initiator
 Non-Bank Led: A corporate organisation other
than a licensed deposit taking institutions and
telecommunication companies as Lead Initiator
CENTRAL BANK OF NIGERIA
Mobile Payments
72
Mobile payment Scenarios are:
• Card Account Based
• Bank Account Based
• Stored Value (e-Money) Account Based.
• There are 21 mobile payment operators in Nigeria
• The mobile payment subscriber’s deposit is insured
by the NDIC
CENTRAL BANK OF NIGERIA
Know Your Customer (KYC) for Mobile Payment
Subscribers
73
BANKING
STATUS
KYC
LEVELS
VERIFICATION
REQUIREMENT
Un-banked
Least
KYC
Name
and
Number
Semibanked
Partial
KYC
Refer to CBN KYC Maximum
transaction
Manual and Money limit of N10,000 and Daily
Laundering
limit of N100,000
(Prohibition) Act.
Fullybanked
Full KYC
Refer to CBN KYC
Manual and Money
Laundering
(Prohibition) Act.
CENTRAL BANK OF NIGERIA
MOBILE PAYMENT
TRANSACTION
LIMIT
Phone Maximum
transaction
limit of N3,000 and Daily
limit of N30,000
Maximum
transaction
limit of N100,000 and
Daily limit of
N1,000,000.
Agent Banking
74
Agent banking is the provision of financial services to
customers by a third party (agent) on behalf of a
licensed deposit taking financial institution and/or
mobile money operator (principal).
 The key objective is to enhance financial inclusion; and
serve as a delivery channel for offering banking
services in a cost effective manner.
 The CBN approved guidelines for the regulation of
agent banking in Nigeria to guide the operations of the
initiative.

CENTRAL BANK OF NIGERIA
Agent Banking – Permissible and Prohibited Activities
Some Permissible Activities
• Cash Deposit & Withdrawal
• Bills payment
• Fund
transfer services
(local)
• Balance enquiry
• Generation
of
mini
statement
• Collection & submission of
account opening
• Cheque book request &
collection
FIs determine which services
a particular agent may
provide
75
Some Prohibited Activities
• Operate when there is
communication failure
• Operate without receipt or
acknowledgement
• Open account.
• Granting of loan
• Transact
in
foreign
currency
• Offer banking services on
its own accord
• Give any guarantee
Int’l Money Transfer Services
76
 international
money
transfer
services
(inbound/outbound),
 Licensing requirements for MTSO include:
 Minimum paid-up capital of N2 billion for Nigerian
companies; and
 Where a foreign technical partner is engaged, the
foreign partner shall have a minimum net worth of
$10 million as contained in the current audited
account.
CENTRAL BANK OF NIGERIA
Int’l Money Transfer Services
77
 Deposit money banks are prohibited from operating
as Money Transfer Service Operators (MTSO), but
can act as agents only with the express permission of
the CBN
 Allowable limit of the outbound money transfer shall
be US$5,000 or its equivalent per transaction,
subject to periodic review by the CBN.
 Allowable cash withdrawal for inbound money
transfer shall not be more than USD500 and any
amount in excess of USD500 shall be paid through a
bank account.
CENTRAL BANK OF NIGERIA
Int’l Money Transfer Services
78
Some Permissible
Activities
 acceptance of monies
for the purpose of
transmitting same to
persons resident in
Nigeria or another
country
 Cross-border personal
money transfer services
(inbound/outbound)
Some Prohibited
Activities
 Act as an authorised dealer
in gold or other precious
metals;
 Engage in deposit taking
and/or lending money;
 Maintain current accounts
on behalf of customers;
 Establish letters of credit; or
 Act as custodian of funds on
behalf of customers
E-payment Incentives Scheme
79
 The CBN approved an industry wide incentive
scheme to further encourage greater adoption of epayment by all.
 The incentive scheme will reward and appreciate
usage across all channels with emphasis on channels
of electronic payments that promote financial
inclusion.
CENTRAL BANK OF NIGERIA
E-payment Incentives Scheme
80
Merchant Incentives
• Reduction of Merchant Service Charge (MSC)
from the current 1.25% or N2, 000 to 0.75% or a
maximum of N1, 200 per transaction.
• Commission on Turnover (COT) Exemption on all
electronic inflows.
• Rewards to merchants through a mystery shopper
and recognition.
• Purchase with Cash-back.
CENTRAL BANK OF NIGERIA
E-payment Incentives Scheme
81
Consumer Incentives
• Point Based Reward System
• Cash Refund
• Merchant promotional gift
Sales Person Incentive
• Salespersons will be encouraged to support electronic
payments by having them enrolled on the tipping point
schemes, through which they will earn points accrued over a
period. Such points may be redeemed by the salespersons
through various gift items or cash.
Efficiency Award for Payments System Service Providers
(Banks, PTSPs, PTSA, Switches, etc) across the value chain.
CENTRAL BANK OF NIGERIA
Scripless Securities Settlement System (S4)
82
 S4 is an application that serves as depository
for government and fixed income securities
 It settles securities transactions on money
market instruments , repos, (ILF, SLF),
Deliver vs Payment (DVP), Delivery vs Free
(DVF).
 It is also used for auction.
 Interface with RTGS for cash settlement of
securities transactions.
CENTRAL BANK OF NIGERIA
E-Reference Portal
83
 This is a web-based document management system
by which one entity can send documents
electronically (e-documents) to the other within the
Nigeria Banking System. It was designed to process
customer account reference.
 The solution ensures that inter bank references
become faster, more efficient and are traceable.
 The e-reference guidelines require that receiving
bank respond to inward references is done within 3
working days.
CENTRAL BANK OF NIGERIA
Authorized Signatory Verification Portal
84
 Authorised Signatory Verification Portal has been
developed for the payment industry.
 The signatory verification portal is expected to
replace the printed signature booklets that banks
distribute so that instructions / documents
received from other banks can be verified online.
 The Portal is meant to digitise the booklet and also
ensure that updates can be made quickly as staff
change functions or move to other institutions.
CENTRAL BANK OF NIGERIA
Payments System Initiatives – Cont’d
 Implementation of Nigeria Uniform Bank Account
Number (NUBAN),
 N150,000 limit on encashment of 3rd party cheques
 Introduction of Cash-less initiative with a view to
reducing cost of cash management, increasing
efficiency of the payments system and financial
inclusion.
 Treasury Single Account (TSA) is a unified structure
of government (MDAs) bank account that gives
consolidated view of cash resources
which could
include expenditure and revenue accounts. The key
objective is to reduce govt. borrowings and improve
cash mgt.
CENTRAL BANK OF NIGERIA
85
Payments System Initiatives – Cont’d
 Government






Integrated Financial Management
Information System (GIFMIS) for budget
management and accounting of MDAs.
Establishment of NEFF
Replacement of RTGS System with a new robust one
that meets users’ requirements.
Licensing of 21 mobile payment operators.
Reduction of clearing Cycle to T+1
RTGS rules and regulations.
Clearing House sanctions.
CENTRAL BANK OF NIGERIA
86
CHALLENGES OF PAYMENTS SYSTEM
87
 Challenge of reducing cash dominance in the
economy
 Infrastructure deficiencies and network downtime
 High cost of deployment and maintenance of epayment terminals/ shortage of technical personnel.
 Low level of public awareness of the existence of
some e-payment products
 Restricted use of e-payment channels due to fear of
fraud and slow conflict resolution mechanism.
CENTRAL BANK OF NIGERIA
CHALLENGES OF PAYMENTS SYSTEM
88
 Governance
issues. Governance refers to all
processes of governing, whether undertaken by a
Local, State or Federal Government.
 Through its action, the government can facilitate
or impede electronic payment. Knowing when to
take action and, equally importantly, when not to,
will be critical to the development of electronic
payment.
 Distress in the financial sector and sharp practices.
CENTRAL BANK OF NIGERIA
THE WAY FORWARD
89
 CBN will continue to monitor compliance
to all the payments System Guidelines
and Standards.
 The CBN in collaboration with key
stakeholders has completed work on the
National Payments System Management
Bill (yet to be approved).
CENTRAL BANK OF NIGERIA
THE WAY FORWARD
90
 More
collaboration
with
other
departments to strengthen consumer
protection and speedy resolution of
issues. Indeed, an e-payment Arbitration
Framework has already been drafted.
 The Agent Banking Framework will drive
financial inclusion and reduce cost of
banking services. .
CENTRAL BANK OF NIGERIA
CONCLUSION
91
 The Central Bank of Nigeria is at the
forefront in ensuring the efficiency of
payment and settlement system in
the country as it has proffered many
policies and initiatives that
facilitate the development of the
payments system .
CENTRAL BANK OF NIGERIA
CONCLUSION
92
 The effort of the Bank in payments system
developments
have
been
yielding
tremendous
results
as
significant
improvements are recorded in its oversight
function.
 The support of all stakeholders are required
towards continuous improvement of the
Nigerian Payments system.
CENTRAL BANK OF NIGERIA
93
 References
 50 years of CBN (Hand Book)
 Banking and Payments System Department
Annual Activity report
( 2010 – 2013)
 Various papers presented in the CBN
 Paper presentations at the CBN Maiden National
Conference on Payments System, Abuja, 2013.
CENTRAL BANK OF NIGERIA
THANK YOU
FOR LISTENING!